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Showing posts from March, 2007

Engines of Inflation

Puru Saxena on the true nature of inflation:

Central banks are the engines of inflation. Whether it is the Federal Reserve in the US or the Bank of England in the UK, the sole purpose of these institutions is to inflate. At the same time, they understate the ongoing inflation problem and manage the public's fears. Therefore, in order to protect your wealth in this era of constant inflation, it is absolutely essential that you properly define and understand inflation. In other words, you need to distinguish between "cause" and "effect".

Today, most people have been conditioned to believe that inflation is an increase in prices as captured by the official "Consumer Price Index". However, the truth is that inflation is an increase in the quantity of money and credit. As the supply of money and credit are inflated (the cause), prices of goods, services and assets rise within an economy (the effect).

This is inflation as it is classically defined. U…

Gold commentary

We've got some gold-focused commentary to share with you today. Let's get to it.

This first piece is an editorial from I.M. Vronsky of the Gold-Eagle website, entitled, "Echoes From The PastMay Illuminate Your Future Path To Wealth".

This article was mentioned by Richard Russell in a recent commentary to his Dow Theory Letters subscribers, so I figure we ought to take a look at it too. And from what I gather, Mr. Vronsky is bullish on gold...

The next piece comes from John Mauldin's "Outside The Box" letter. In, "Macro-Markets: Gold Trading Boot Camp", Greg Weldon talks about his new book and the importance of gold.

Here's an excerpt:

In my new book, "Gold Trading Boot Camp: Master the Basics and Become a Successful Commodities Investor", I cite four 'realities' around which ALL of the current macro-market movements occur. They are:

Every single day for more than thirty years, since the abolishment of the "gold standard…

Social Cycles and the Coming Golden Age

I saw something very interesting the other day while I was walking through the museum.

In the corridor housing the Art Institute's Amerindian collection, I noticed a round mosaic disc covered with small turqoise-colored tiles. The differently-shaded color tiles were arranged in such a way that would reveal an image to the knowing viewer.

Although some small pieces of tile were missing, a placard next to the object reproduced the design in detail and identified it as an image depicting the importance of the 52 year cycle and the longer-run cycles tracked by the Mixtec calendars.

These cycles were said to be of great importance to the Mixtec culture; their beginning and end symbolized a change in the social order and influenced their outlook for their civilization and the world.

With this in mind, it was interesting to see M.A. Nystrom's recent article at Safehaven.com regarding a similar subject, "Social Cycles and the Coming Golden Age".

In this piece, Nystrom relate…

Debating global climate change

The idea that man made pollutants and carbon dioxide emissions are directly affecting our planet's climate is a highly controversial issue, one that's taken center stage across the globe.

This topic is still shrouded in debate. On one side, are those who have come to believe in a scientific consensus that says global warming/climate change is real and is undoubtably caused by humans and our industrial development. Another side claims there is no real scientific consensus on this issue, and that many dissenting opinions on the subject of man-made global climate change are being suppressed.

In fact, these global warming "deniers" say the changes in climate we constantly monitor are part of longer-term shifts in the earth's climate and environment that have occurred for as long as we can imagine.

As media coverage of the issue and the surrounding debate grows, one thing is certain; the rhetoric has become increasingly alarmist and ever more divisive. Will we be able …

Stocks and commodities positively correlated?

There has been growing acceptance lately for including commodities in the average portfolio because of their inverse correlation to stocks. In simple terms, this means that one asset class (commodities, for example) tends to well in periods where the other does poorly.

This idea has become one of the more widely-held notions among investors and investment managers. But does it stand up to closer examination?

Steve Saville has written an article for Safehaven entitled, "Stocks, Commodities, and Inflation", that tackles this subject. Here is an exerpt from that piece:

Continuing with the "sometimes things are different" theme, during the current cycle there has clearly been a change in the relationship between stocks and commodities. Stocks and commodities have traditionally been either inversely correlated or uncorrelated asset classes, and as a result there has been a general tendency for professional money managers to use commodity-related investments to hedge the…

More derivatives, not less?

John Mauldin's latest "Outside The Box" letter focuses on the writings of Woody Brock, who argues the financial system needs more derivatives, not less.

Here's John's introduction to Brock's article:

An all too common myth is that the total value of derivates is in and of itself dangerous because they are a form of leverage...but that is not the case. Derivatives, per se, are not a form of leverage; rather they afford the opportunity and make it easier and less risky for others to use leverage across many different assets and instruments (i.e. - mortgages, insurance, etc...).

It is the leverage which is then the issue, as paradoxically, the decreased risk (hedging) aspects of derivatives allows investors to feel more comfortable with increased leverage, which sends a variety of signals to market participants.

The problem lies not in the instruments but in how the risk is distributed. While many of the larger, institutional players have used the offshoots of der…

Web censorship grows

Our brush with web censorship in China was followed up last week by a Financial Times report that shows web censorship is growing globally.

Here are some key excerpts from that article:

Internet censorship is spreading rapidly, being practised by about two dozen countries and applied to a far wider range of online information and applications, according to research by a transatlantic group of academics.

A recent six-month investigation into whether 40 countries use censorship shows the practice is spreading, with new countries learning from experienced practitioners such as China and benefiting from technological improvements.

OpenNet Initiative, a project by Harvard Law School and the universities of Toronto, Cambridge and Oxford, repeatedly tried to call up specific websites from 1,000 international news and other sites in the countries concerned, and a selection of local-language sites.

The research found a trend towards censorship or, as John Palfrey, executive director of Harvard L…

Iraqis say they are worse off

A new face-to-face poll conducted in Iraq finds most Iraqis pessimistic about their lives and the war's outcome.

Continued violence and disruptions to most aspects of daily life have defined the instability and uncertainty that many Iraqis live with.

An excerpt from an AP/MSNBC article:

The number of Iraqis who say their own life is going well has dipped from 71 percent in November 2005 to 39 percent now.

About three-fourths of Iraqis report feelings of anger, depression and difficulty concentrating.
More than half of Iraqis have curtailed activities like going out of their homes, going to markets or other crowded places and traveling through police checkpoints.

Only 18 percent of Iraqis have confidence in U.S. and coalition troops, and 86 percent are concerned that someone in their household will be a victim of violence.

Full article available at the above link.

Also should point out that a conflicting poll is being covered at the Times Online.

That poll, conducted by ORB, finds that…

Ah, Green Sunday

Harry Eyres writes the "Slow Lane" column in the Financial Times' Weekend edition. Anyone extolling the virtues of the quiet life is generally my kind of person, but I've become particularly fond of Eyres' column lately.

The following is an excerpt from his latest piece, "Ah, Green Sunday":

Surreptitiously, without any formal announcement, some time in the late 1970s or early 1980s, Sunday was abolished. The day remained on the calendar, of course, but it was transformed from a day of rest, or boredom, into a day of shopping and driving, getting and spending. The time has come to reverse this process.

That, at least, is the refreshingly heretical view of my friend Satish Kumar, former Jain monk and editor of the bimonthly ecological magazine Resurgence. In a letter to me Satish comments that most of the proposals to counter global warming suggested in Sir Nicholas Stern's review are technological and long-term.

We can't immediately switch to renew…

Jim Rogers on Russia, emerging markets

Noted investor Jim Rogers is making some headlines this week, as he warns of a bubble in the Russian stock market and an end to the global "liquidity party".

Let's focus on Russia first. Rogers does not like what he sees in Russia, and thinks that the overvalued Russian stock market could be headed for a bust, "sooner rather than later".

Reuters article quote:

"I wouldn't put a nickel of my own money in Russia, and I wouldn't put a nickel of your money there either," Rogers, a long-time commodities bull, told Reuters by telephone from New York on Wednesday.

"Everything about Russia is one big bubble, and it's going to pop. It's going to happen sooner rather than later," said Rogers, who co-founded the Quantum Fund with George Soros in the 1970s and has focused on commodities since 1998.

"When that happens, people will look around and say, how did that happen? That's when we'll find out about all the skeletons in th…

Political risk in emerging markets

Excerpts from a Financial Times article on rising political risk in emerging markets:

Political risk in emerging markets has risen sharply amid rising expropriation risks, regulatory uncertainty and a worsening credit outlook, according to a report out on Tuesday.

The Alliant Emerging Markets political risk index climbed 5 per cent in the year to February, its biggest since the aftermath of the September 2001 terrorist attacks.

Underpinning the rise were increasing government action against foreign investors in Latin America and central Asia and credit risks in Eastern Europe.

The article goes on to detail the growing trend towards resource nationalization, state expropriation of assets, and contract and regulatory disputes with government. These factors make business all the more treacherous in "emerging" nations.

But given the fact that we've seen clear evidence of these trends unfolding over the past several years, should much of this come as a surprise?

In aiming to qua…

Heavy hitters of finance discuss regulation

Bloomberg has posted a video panel discussion on US competitiveness and financial regulation, featuring a high-profile cast of speakers that includes Warren Buffett, Jamie Dimon, and Jeffrey Immelt.

The panel is moderated by Treasury Secretary Hank Paulson and SEC Chairman Chris Cox. Will rotten tomatoes and cabbage be thrown at the mention of the words, "Sarbanes-Oxley"?

Tune in and find out, and see which way the wind is blowing with regards to the US' current regulatory environment.

Britain sets emissions standards

Reuters reports, "Britain proposes legal limits on carbon emissions".

Here's an excerpt from that article:

Britain on Tuesday became the first country to propose legislation setting binding limits on greenhouse gas emissions as it stepped up its campaign for a new global warming pact to succeed the Kyoto Protocol.

In its draft Climate Change Bill, the government said carbon dioxide emissions had to be cut by at least 60 percent by 2050, set out five-year carbon budgets to reach the target and created an independent monitoring committee to check annual progress.

Personally I'm not a proponent of government-mandated goals and restrictions, preferring instead the infinitely more dependable solutions provided by freely thinking companies and individuals, but we'll see how it works out for them.

It should be noted however, that even if industrial pollution and emissions are not directly responsible for global climate change, we should have recognized their harmful effec…

Banned in China

I was checking out a recent article by Marc Faber over at the Daily Reckoning's Australia site, when I glanced in the sidebar and noticed the title of one of their recent posts.

The title read, "The Daily Reckoning Has Been Banned in China", and it began with the following information:

We are sorry to inform you that if you are in China you will not be able to read this. We’ve recently learned that the Daily Reckoning Australia web site is banned in China.

They went on to reproduce a screenshot from a site called, Greatfirewallofchina.org, which claims to show a real-time test of web addresses censored in China. I decided to try the site for myself yesterday (and once more today) to see how it works.

Of the ten or twelve URLs I entered into their test bar, I'd say half were blocked and half were available. It was an interesting test; Wall St. Journal's web site was blocked, while The Financial Times home page sailed through with no problem.

The same pattern held for…

Sears, the Hedge Fund

We've talked in the past about hedge fund manager, Ed Lampert and his drive to transform Sears Holdings into something more than the retail giant it has always been.

Now a new article from the Washington Post zeroes in on Lampert and the changing face of Sears. The company is described as an entity divided into separate parts: Sears the Retailer, and Sears the Hedge Fund.

Will the "Hedge Fund" side of Sears be able to make up for crumbling retail operation ("the softer side of Sears")? That's the million dollar question.

Thanks to Paul at Infectious Greed for the article link.

For more on Lampert and Sears, see the first link ("Ed Lampert") in this post, as well as Andy Kern's articles on Sears Holdings over at Berkshire Ruminations.

Hitting the wall of misinformation

Peter Schiff is this week's guest expert interview on the Financial Sense Newshour. If you haven't heard the interview, you might want to drop in and have a listen.

Peter has a new book out called, Crash Proof, and he's talking with FSN host Jim Puplava about some of its core concepts.

While the book is specifically designed to steer readers (and would-be clients of his firm's offerings) towards an alternative investment program focused on non-dollar denominated investments, it also serves as a sort of crash-course lesson in real world economics.

The interview brings these lessons to the fore, as Peter discusses some of the commonly held misconceptions about our national economy, and sheds some light on what's really happening in America, financially speaking.

This discussion provides a much-needed counterpoint to the endless drivel and misinformation spouted in almost every forum of economic discussion nowadays.

You don't have to adopt Schiff's investment p…

Features of the week

Lots to report here, including some additional stories on energy and the environment that we promised you earlier in the week. Let's get started.

1. Journalist killings reach record numbers. The Financial Times covers the findings of an International News Safety Institute (INSI) report which shows "the world to be a more dangerous place than ever for journalists."

More than 1,000 media workers died on assignment between 1996-2006, and a very large part of these deaths were no accident. Unfortunately, the INSI report finds that the killing of journalists is, in large part, a "virtually risk-free" activity. This is due to the fact that many of their killers go unnoticed and unprosecuted.

The full INSI report, "Killing The Messenger", is available for download in PDF format.

2. "Politics and the English Language". An interesting article from the San Francisco Chronicle on the degredation of language and the resulting impact on our view of reality…

An American says, "I'm sorry".

Since retiring from the investment management business in the 1990s, Dean Lebaron has had more time to focus on a variety of interests.

He has written and spoken about technology and its investment applications, international relations, solving global problems, and he has also taken time to rethink some of his previously held beliefs.

Dean also maintains a website, deanlebaron.com, where he logs some of his thoughts on technology, investing, his family and lifestyle, and the world we live in.

Recently, he recorded a short video commentary on his view of the world and the shift in how the world views the United States. I found his brief take on the matter, as well as his openness, interesting and refreshing. See: Dean to International Friends: "I'm Sorry".

To view the clip, you'll need RealPlayer, which can be downloaded for free at his website.

You can also visit the site for more on Dean's point of view, or see his most recent interview with Barron's magazine.

Hyperinflation in China

After posting earlier about Hugo Salinas Price's editorial on the role of currency, I took a look at some of the other editorials recently posted to Financial Sense Online. Here's another that caught my eye, and it makes a great follow-up to the Salinas Price piece.

Mike Hewitt fills us in on, "Hyperinflation In China 1937-1949", providing a sort of historical setpiece that illustrates the principles of free banking and the dangers of fiat money and government-controlled currency issuance.

In this essay, Hewitt gives an overview of how China's private banking system was undermined by Chiang Kai-shek's Nationalist Party in favor of a Central Bank and fiat money, a situation which eventually led to the great money printing and inflation of the 1930s and '40s.

I found this to be an excellent overview of one of the modern era's less-discussed inflationary periods. And again, I felt that this bit of economic history compliments the Salinas Price article fab…

A Fairy Tale World

Noted silver money advocate, Hugo Salinas Price, offers up the following editorial on money's current role for Financial Sense Online, entitled, "A Fairy Tale World".

Here is an excerpt from that article:

The World is exchanging goods and services by various national means of exchange. We are using those same means of exchange as a vehicle for savings. We are denominating credit contracts in any one of various national means of exchange. The predominant means of exchange is the US dollar.

However, a means of exchange voluntarily accepted as such, by those who participate in exchanging goods and services, by those who use it as a vehicle for savings and by those who denominate credit contracts in it, is not per se money.

Money must, sine qua non, function not only as a means of exchange, but also as a means of payment.

The world, as of February 2007, does not possess a means of payment. In economic terms, payment is the exchange of something for something. In today’s world, w…

Energy and environment: heads up

Just a quick heads up on some energy and environment - related issues.

We're going to do a more detailed post on issues related to oil production, biofuels and global warming later in the week, but for now check out some of these stories featured in today's edition of The Oil Drum's article roundup, "Drumbeat".

Some of the stories that caught my eye:

1. The New York Times ran an article on oil depletion and advanced recovery techniques that are helping oil companies get more barrels of crude oil out of older, existing fields. Will these technological advancements succeed in pushing back "peak oil"?

Thanks to Paul at Infectious Greed for providing the initial link.

2. The Chinese water shortage is for real. The Oil Drum links us to a Yahoo! news story about a lack of water due to droughts and high temperatures in certain provinces of China.

3. More news of near slave-labor conditions in Brazil, this time in connection with biofuels production. Brazilian sugar…

Features of the week

We've got some great news and interview features for you this Friday. Lot of interesting market-related tidbits here, so let's dive right in.

1. Jim Rogers speaks with CNBC and Maria Bartiromo about the economy, commodities, and the recent worldwide market drop.

2. Noted international investor, Rudolph-Riad Younes chats with Maria about his outlook for investments and opportunities across the globe, and offers some observations on the importance of the upcoming French elections.

3. Marc Faber sits down with Bloomberg for an interesting interview segment. Lots of ground covered here, and I was pleased to hear Marc go into some detail on the issue of Thailand and his investment outlook for that country, so be sure to check this out.

4. The Economist recently took on the topic of tax havens, or "offshore financial centers", and their importance in the world economy. See their online article, "Places in the sun", for an introduction to their coverage of this issue,…

Politics, media, and the drift from reality

Politics. One of my least favorite subjects.

As it stands, politics has a very unifying and universal feel about it; it serves as a great waste of time, money, and resources, while providing an affront to human decency and intelligence wherever it is practiced.

And yet, this noble occupation and artform (hey, pickpocketing is an artform if done well) consumes a great part of our attention and our lives. In America, it seems politics has come to consume a greater share of our daily lives, even as people claim they are feeling increasingly alienated from the political process and everyday "politics" between groups and individuals.

Still, few things have as great a hold on our national attention as the key election cycles. As we enter the runup to the 2008 presidential campaign, let's examine our interaction with the political and media circus/machine. We'll also look at some of the financial and economic trends that are likely to develop with the next election.

Now sinc…